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TMI Blog2017 (3) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... of customs duty liability has been adjusted against export obligation before the due date for filing return of income. Accordingly we reverse the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition. - Decided in favour of assessee - I.T.A. No. 2630/Mum/2013 - - - Dated:- 22-3-2017 - Shri B.R. Baskaran (AM) and Shri Ravish Sood (JM) For The Assessee : Shri Jehangir D. Mistry and Shri Ronak D. Doshi For The Department : Shri N.P. Singh ORDER Per B.R. Baskaran (AM) :- The appeal filed by the assessee is directed against the order dated 29.1.2013 passed by the learned CIT(A)-4, Mumbai and it relates to A.Y. 2003- 04. Grounds of appeal urged by the assessee relate to the following issues:- a) Validity of reopening of assessment b) Validity of addition u/s. 43B of the Act c) Alternative contention with regard to the addition made u/s. 43B of the Act. 2. We shall first take up the issue relating to the addition made u/s. 43B of the Act. The assessee procures crude oil through imports. The significant proportion of the imports was made by utilising advance license benefit obtained for import of raw materials for manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee submitted that the Coordinate Bench of the Tribunal has considered an identical issue in assessee s own case in ITA No. 6835/Mum/2008 and CO No. 105/Mum/2009 relating to A.Y. 2004-05 and the Coordinate Bench has taken the view that fulfillment of export obligations has resulted in reduction of a liability which is otherwise allowed under the Act and therefore in terms of the first proviso to section 43B of the Act, the Customs Duty liability is deductible. The Ld D.R did not controvert the submissions made by Ld A.R. 5. We notice that an identical issue was considered by the co-ordinate bench in the assessee s own case and for the sake of convenience, we extract below the relevant observations made by the Coordinate Bench in the above said case :- 27. Now, we may take up the merits of the disallowance of ₹ 40,41,81,896/- made by the Assessing Officer, which is sought to be challenged by the assessee on various limbs. In order to appreciate the controversy, the following background of the dispute is relevant. The appellant-company procures a portion of its raw material (i.e. crude oil) through imports. A significant portion of the imports is against the Advance licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the provisions of Sec. 43B of the Act was applicable thereby implying liability arose in the year under consideration, but erred to the extent of holding that fulfilment of export obligations by 30.9.2004 did not amount to payment of Customs duty within the meaning of Sec. 43B of the Act. Further, it has been pointed out that having regard to the manner in which assessee has treated the amount relating to the Customs duty in its books of account, the entire exercise is unnecessary and is tax neutral over the years. The learned representative has in detail argued on the aforesaid propositions, which we shall elucidate further in the subsequent paras. 29. On the contrary, the stand of the ld. DR appearing for the Revenue is in support of the orders of authorities below. 30. Pertinently, the entire controversy revolves around the provisions of Sec. 43B of the Act. Sec. 43B of the Act was inserted by the Finance Act, 1983 w.e.f. 1.4.1984 and prescribes for certain deductions to be allowed only on actual payment while computing the income chargeable to tax under the head Profit and gains of business or profession . Shorn of other details, insofar as it is necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mported against Advance licence pending completion of export obligations. Upto 30.9.2004, assessee has fulfilled the export obligations corresponding to the Customs duty liability of ₹ 40,41,81,896/-. In its computation of income, assessee adjusted the aforesaid amount of ₹ 40,41,81,896/- against the Provision for Customs duty as on 31.3.2004 and claimed it as deduction u/s 43B of the Act. We may also briefly touch upon the accounting treatment accorded by the assessee to such transactions. At the time of import of raw material, assessee creates a Provision of Customs duty on such imports by debiting Customs duty on raw material account and crediting Customs duty Advance licence account. The Customs duty Advance licence account is shown as a liability outstanding in the Balance-sheet and subsequently, on fulfilment of the export obligation, the Customs duty Advance licence account is debited and Export licence benefit received account is credited and is offered as income. In the context of the instant fact-situation, it may be appreciated that assessee had created a Provision of ₹ 40,75,50,184/- in the year under consideration, being Customs duty pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may, on sufficient cause being shown, allow, or for any other sufficient reason, the importer shall, notwithstanding anything contained in section 28, be liable to pay the amount of duty not so adjusted together with simple interest thereon at the rate of twelve per cent per annum from the date the said permission for clearance is given to the date of payment. (3) While permitting clearance under sub-section (1), the [Assistant Commissioner of Customs or Deputy Commissioner of Customs] may require the importer to execute a bond with such surety or security as he thinks fit for complying with the conditions specified in sub-section (2). 33. Sub-section (1) of Sec. 143A of Customs Act, 1962 prescribes that where any material is imported under an import licence belonging to the category of Advance licence, the competent authorities can permit clearance of such material without payment of duty leviable thereon. Sub-section (2) provides the conditions for grant of permission for clearance of goods without payment of duty. It is noteworthy that in terms of Sec. 12 of the Customs Act, 1962 the charge of Customs duty gets crystallised with the import of goods into India, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs Act, 1962 prescribing paying of duty with interest if assessee was to default in meeting with export obligations itself would demonstrate that the liability for payment of Customs duty arises during the year of the clearance of goods. At the time of hearing, reliance has also been placed on the decision of the Ahmedabad Bench of the Tribunal in the case of Pratibha Syntex Ltd. v. Jt. Commissioner of Income-tax, 81 ITD 118 where it has been observed under somewhat similar circumstances that the Customs duty liability is not to be regarded as a contingent liability. 34. Therefore, in view of the aforesaid discussion, it is reasonable to conclude that the liability represented by the Provision of ₹ 40,75,50,184/- being Customs duty payable on import of raw material arises during the previous year relevant to the assessment year under consideration as assessee brought the requisite goods into India from a place outside India. Therefore, under these circumstances, CIT(A) erred in taking the view that Sec. 43B of the Act is not applicable in the case of assessee on an erroneous ground that the liability of Customs duty did not arise in the instant year. 35. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated export obligations would be able to avail the provisions of Sec. 43B of the Act, but not a performing assessee who complies with and discharges his obligation to make the mandated export? Be that as it may, in our view, the fulfillment of export obligations has resulted in reduction of a liability which is otherwise allowable under this Act and, therefore, in terms of the first proviso to Sec. 43B of the Act the amount of ₹ 40,41,81,896/- is deductible in the instant assessment year, and the stand of the Assessing Officer in this context is legally misplaced. 38. Apart from the aforesaid, assessee had also made a plea that the accounting treatment accorded by the assessee was tax neutral and, therefore, the entire exercise undertaken by the Assessing Officer was unnecessary in the present case. In this context, it has been pointed out that assessee has claimed deduction of the liability for payment of Customs duty in the year of import, as reflected by the debit to the Profit Loss Account of the Provision of Customs duty and has correspondingly offered for assessment, the credits made in the subsequent year by way of fulfilment of export obligations in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view in AY 2004-05 that the provisions of sec. 43B would not be applicable to the Customs duty liability, but the Tribunal had set aside the same. However, in the instant year, the Ld CIT(A) has confirmed the addition by holding that the provisions of sec. 43B shall be applicable to the assessee. We notice that the co-ordinate bench has taken the view that the customs duty liability adjusted against export obligations is liable to be allowed as deduction under first proviso to sec. 43B of the Act. We further notice that the view so taken by the co-ordinate bench has been followed by another co-ordinate bench in the assessee s own case relating to AY 2005-06 in ITA No.7341/Mum/2008 CO No.104/M/2009 dated 22-12-2006. In view of the above, consistent with the view taken by the co-ordinate benches in other years, we hold that the assessee is entitled to deduction u/s 43B of the Act in respect of customs duty liability adjusted against export obligation. In the instant case, there is no dispute that the entire amount of customs duty liability has been adjusted against export obligation before the due date for filing return of income. Accordingly we reverse the order passed by Ld CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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